Loan Modification and Bankruptcy Basics Powerpoint Slideshow 2009 NCVAA


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National Conference of Vietnamese American Attorneys

NCVAA is the only national organization that provides a forum for distinguished Vietnamese American judges, elected officials and attorneys to celebrate our accomplishments in the U.S. and abroad, promote the high standards of professionalism in law and politics, and discuss legal and community issues affecting Vietnamese Americans.

Past guests, panelists and speakers of NCVAA include Vietnamese Americans that are prominent judges, highly regarded elected officials and accomplished attorneys: Hon. Thang Nguyen Barrett, Hon. Tam Bui, Hon. Jacqueline Duong, Prof. Wendy Duong, Viet V. Le, Hon. Jacqueline Nguyen, Madison Nguyen, Hon. Nho Nguyen, Tasha Nguyen, Prof. Xuan-Thao Nguyen, Thuy Thi Nguyen, Hon. Tu Pham, Assemblyman Van Tran, Prof. Nhan Vu and many more.

We have also been honored with the attendance of esteemed non-Vietnamese Americans that either gave speeches, sat as panelists or attended the events: Jeffrey Bleich (Pres. of CA State Bar), Hon. David O. Carter (U.S. District Court, Central District of CA) Hon. John Chiang (CA State Controller), Justice Ming W. Chin (California Supreme Court), Kamala Harris (San Francisco District Attorney), Peter McHugh (Santa Clara County Supervisor), Hon. Nathan Mihara (CA Sixth Appellate District Court of Appeals), Justice Carlos R. Moren (California Supreme Court), Hon. Alicemarie Stotler (Chief Judge of the US District Court, Central District of CA) and many others.

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Loan Modification and Bankruptcy Basics Powerpoint Slideshow 2009 NCVAA

  3. 3. PRE-FORECLOSURE TIMELINE <ul><li>LOAN SERVICER ACTION </li></ul><ul><li>Borrower default </li></ul><ul><li>Mail breach letter </li></ul><ul><li>Breach expires (referral to foreclosure) </li></ul><ul><li>Attempt to contact borrower to discuss financial situation and options to avoid foreclosure </li></ul><ul><li>- Only applies to loans made 1/1/03 – 12/31/07 and only for owner-occupied residences </li></ul><ul><li>DAYS </li></ul><ul><li>0 </li></ul><ul><li>30 </li></ul><ul><li>90 </li></ul><ul><li>STATUTE </li></ul><ul><li>Civ. Code § 2923.5(a)(2) </li></ul><ul><li>Civ. Code § 2923.5(i) </li></ul>
  4. 4. PRE-FORECLOSURE TIMELINE ( CONTINUED… ) <ul><li>LOAN SERVICER ACTION </li></ul><ul><li>Contact made: </li></ul><ul><li>- Advise borrower of right to request a subsequent meeting, which must be scheduled within 14 days if requested </li></ul><ul><li>- Provide borrower with HUD toll-free phone number to find a HUD-certified housing counseling agency </li></ul><ul><li>Or unable to contact  due diligence: </li></ul><ul><li>- Mail borrower HUD toll-free phone number to find a HUD-certified housing counseling agency </li></ul><ul><li>- Attempt to contact 3 times at different hours on different days, unless all numbers on file are disconnected </li></ul><ul><li>Trustee records Notice of Default </li></ul><ul><li>DAYS </li></ul><ul><li>-30 (90) </li></ul><ul><li>-0 (120) </li></ul><ul><li>STATUTE </li></ul><ul><li>Civ. Code § 2923.5(a)(2) </li></ul><ul><li>Civ. Code § 2923.5(a)(2) </li></ul><ul><li>Civ. Code § 2923.5(g)(1) </li></ul><ul><li>Civ. Code § 2923.5(g)(2)(A) </li></ul><ul><li>Civ. Code § 2923.5(g)(2)(C) </li></ul><ul><li>Civ. Code § 2923.5(a)(1) </li></ul>
  5. 5. FORECLOSURE TIMELINE <ul><li>TRUSTEE ACTION </li></ul><ul><li>Record Notice of Default </li></ul><ul><li>(include Declaration that contact was made with borrower to discuss options, or due diligence attempts, or borrower has surrendered property) </li></ul><ul><li>Mail Notice of Default to borrower </li></ul><ul><li>Mail Notice of Default to borrower’s successors in interest , and junior recorded interests </li></ul><ul><li>Servicer to attempt loan modification if: </li></ul><ul><li>(1) Loan recorded 1/1/03 – 1/1/08 </li></ul><ul><li>(2) First mortgage </li></ul><ul><li>(3) Borrower occupied property as principal residence at time of delinquency </li></ul><ul><li>(4) Notice of Default recorded </li></ul><ul><li>Unless Servicer obtains exemption </li></ul><ul><li>( </li></ul><ul><li>DAYS </li></ul><ul><li>0 </li></ul><ul><li>10 </li></ul><ul><li>30 </li></ul><ul><li>90 </li></ul><ul><li>STATUTE </li></ul><ul><li>Civ. Code § 2924(a)(1) </li></ul><ul><li>Civ. Code § 2923.5(b) </li></ul><ul><li>Civ. Code § 2924b(b)(1) </li></ul><ul><li>Civ. Code § 2924b(c)(1) </li></ul><ul><li>Civ. Code § 2923.52(a) </li></ul><ul><li>Civ. Code § 2923.52(b) </li></ul><ul><li>Civ. Code § 2923.53 </li></ul>
  6. 6. FORECLOSURE TIMELINE ( CONTINUED … ) <ul><li>TRUSTEE ACTION </li></ul><ul><li>Record Notice of Trustee’s Sale </li></ul><ul><li>(if NOD recorded before statute enacted, incl. Declaration contact was made with borrower, or list efforts made to contact borrower) </li></ul><ul><li>Mail Notice of Trustee’s Sale to borrower </li></ul><ul><li>Mail Notice of Trustee’s Sale to borrower’s successors in interest and junior recorded interests </li></ul><ul><li>Post and publish Notice of Trustee’s Sale </li></ul><ul><li>Last day to reinstate loan </li></ul><ul><li>Trustee’s sale </li></ul><ul><li>DAYS </li></ul><ul><li>180 </li></ul><ul><li>-20 (180) </li></ul><ul><li>-5 (195) </li></ul><ul><li>-0 (200) </li></ul><ul><li>STATUTE </li></ul><ul><li>Civ. Code § 2924(a)(3) </li></ul><ul><li>Civ. Code § 2923.5(c) </li></ul><ul><li>Civ. Code § 2924b(b)(2) </li></ul><ul><li>Civ. Code § 2924b(c)(3) </li></ul><ul><li>Civ. Code § 2924f(b)(1) </li></ul><ul><li>Civ. Code § 2924c(e) </li></ul>
  7. 7. FORECLOSURE LEGISLATION PROPOSAL AB 1588: MONITORED MORTGAGE WORKOUT PROGRAM <ul><li>INTRODUCED 9/9/09 </li></ul><ul><li>NOD must contain notice of borrower’s right to elect to participate in MMW Program </li></ul><ul><li>Program to be administered by the Cal. Housing Finance Authority (CHFA) </li></ul><ul><li>Borrower must communicate to CHFA and Trustee his election to participate in MMW within 30 days of receiving NOD </li></ul><ul><li>If borrower elects to participate, a “Monitor” is appointed to oversee the loan modification process </li></ul><ul><li>Once MMW is elected, foreclosure must be stayed until MMW is completed </li></ul><ul><li>The Monitor shall assist the parties in assessing affordability of any loan modification and its NPV versus foreclosure </li></ul><ul><li>If the parties cannot agree, the Monitor shall prepare a reasonable loan modification proposal that satisfies HAMP guidelines, if feasible </li></ul><ul><li>If the Trustee rejects the proposal or acts in bad faith as determined by the Monitor, the borrower can enforce the Monitor’s proposed loan modification in expedited court action </li></ul><ul><li>If the borrower rejects the proposal or acts in bad faith as determined by the Monitor, foreclosure may resume </li></ul><ul><li>The Monitor is paid up to $750 by the Trustee; if loan is modified, the borrower reimburses ½ </li></ul><ul><li>Borrower must establish a trust account and deposit 60% of monthly mortgage payments </li></ul><ul><li>“ Trustee” means lender, mortgagee, trustee, beneficiary, or authorized agent that recorded NOD </li></ul><ul><li>Cf. Nevada Foreclosure Mediation Program </li></ul>
  8. 8. FORECLOSURE STATISTICS ( REALTYTRAC ) CALIFORNIA RATE MAP FORECLOSURE ACTIVITY BY MONTH FORECLOSURE ACTIVITY BY COUNTY FORECLOSURE ACTIVITY & HOME PRICE INDEX <ul><li>459,698 FORECLOSED HOMES </li></ul><ul><li>92,326 IN AUGUST 2009 </li></ul><ul><li>1 IN 27,844 HOMES </li></ul><ul><li>6-MONTH TREND: DECLINE </li></ul><ul><li>STATE FORECLOSURE </li></ul><ul><li>RATE RANKING </li></ul><ul><li>NEVADA </li></ul><ul><li>FLORIDA </li></ul><ul><li>CALIFORNIA </li></ul><ul><li>ARIZONA </li></ul><ul><li>MICHIGAN </li></ul>
  9. 9. BORROWER FACES FINANCIAL CRISIS, WHAT ARE THEIR OPTIONS TO HELP SAVE THEIR HOME? <ul><li>Refinance </li></ul><ul><li>Short sale </li></ul><ul><li>Deed in lieu </li></ul><ul><li>Predatory lending litigation </li></ul><ul><li>Loan modification </li></ul><ul><li>Bankruptcy </li></ul>
  10. 10. OVERVIEW OF LEGAL CLAIMS AGAINST LENDERS, BROKERS, AND TRUSTEES <ul><li>Truth In Lending Act (“TILA”) Violations </li></ul><ul><li>Homeownership Equity Protection Act (“HOEPA”) </li></ul><ul><li>Real Estate Settlement Procedures Act (“RESPA”) </li></ul><ul><li>California Civil Code § 2923.5 and 2923.6 </li></ul><ul><li>California Civil Code § 2923.52 </li></ul><ul><li>Business and Professions Code § 17200, 17500 </li></ul><ul><li>Violations of Foreclosure Procedure; CC § 2932.5 and Cal. Commercial Code § 3301, et. seq. </li></ul><ul><li>California Translation Act (Civil Code § 1632) </li></ul><ul><li>Welfare & Institutions Code § 15610.30 </li></ul><ul><li>UDAP, Fraud, Breach of Fiduciary Duty, ect. </li></ul>
  11. 11. TRUTH IN LENDING ACT (“TILA”) <ul><li>TILA is primarily a Federal Disclosure statute: 15 USC § 1601, promulgated by Regulation Z, 12 CFR § 226.2 </li></ul><ul><li>TILA’s purpose is to assure a meaningful disclosure of credit terms so that the borrowers will be able to compare more readily the various credit terms available to them and avoid the uninformed use of credit and to protect the consumer against inaccurate and unfair credit billing. 12 C.F.R. § 226.1. </li></ul><ul><li>Requires the originating lender to make disclosures that are “ Clear and Conspicuous ” and accurately reflect the legal obligation on the loan. 12 C.F.R. § 226.17(c)(1) </li></ul>
  12. 12. TILA RESCISSION – COVERED LOANS <ul><li>TILA rescission applies: </li></ul><ul><ul><li>Refinances secured by a principal dwelling - includes Second Mortgages and Home Equity Lines of Credit but does not apply to purchases . </li></ul></ul><ul><ul><li>Three Year Statute of Limitations </li></ul></ul><ul><ul><li>Must Be Refinanced as Owner Occupied </li></ul></ul><ul><li>Rescission applies to Assignees. </li></ul><ul><li>Assignee Liability for Disclosure Violations if Violations are “Apparent on the Face” of the loan documents </li></ul>
  13. 13. TILA RESCISSION FOR MATERIAL DISCLOSURE VIOLATIONS <ul><li>TILA violations extend the right to rescind from </li></ul><ul><li>3 days to 3 years . </li></ul><ul><li>Most common violation is “ Right To Cancel ” Notice. APR & Finance Charge violations less common. </li></ul><ul><li>All closing costs and all interest paid to date on the loan are returned to the borrower </li></ul><ul><li>Money is “returned” to borrower through Principal Reduction . Statutory and attorneys fees available. </li></ul>
  14. 14. <ul><li>The TILA, at 15 U.S.C. § 1635(a) as implemented under Regulation Z § 226.23 (b) , requires that each borrower receive two (2) copies of the right to cancel notice at closing </li></ul><ul><li>The notice is required to clearly and conspicuously disclose, among other things, the date the rescission period expires ( Regulation Z § 226.23(b)(1)(i-v) ). </li></ul><ul><li>A signed Acknowledgment creates only a rebuttable presumption . 15 U.S.C. § 1635(c) </li></ul>TILA AND THE 3 DAY RIGHT TO CANCEL NOTICE
  15. 15. WITH TILA, “HYPERTECHNICALITY REIGNS” ¹ <ul><li>Providing a defective right to cancel, or not providing a right to cancel at all is a defect which has been held to give rise to an extended rescission period by the 9th Circuit Court of Appeals. Semar vl Platte Valley Fed. Sav. & Loan Ass’n , 791 F.2d 699 (9th Cir. 1986). </li></ul><ul><li>The client has 3 years from close of escrow to exercise the rescission right. </li></ul><ul><li>¹Hamm v. Ameriquest, ~F.3d~, 2007 WL 3010973 (7 th Cir. Oct. 17, 2007) </li></ul>
  16. 16. TILA PROBLEMS FOR BORROWERS <ul><li>Borrower required to Refinance and Payoff Old Loan at reduced principal (“ tender ”) </li></ul><ul><li>Few if any borrowers can tender due drop in FMV, unless they have equity. </li></ul><ul><li>Judges have equitable discretion to modify rescission process, but few have. </li></ul><ul><li>More TILA rescission cases being dismissed due to inability to tender. </li></ul>
  17. 17. OPTION ARMS AND TILA STATUTORY DAMAGES <ul><li>Under TILA, a plaintiff is entitled to statutory damages, attorneys fees, and costs for a lender’s failure to comply with its provisions, including the material disclosures. See 15 USC § 1640(e). </li></ul><ul><li>Disclosures must be “ Clear and Conspicuous ” and accurately reflect the legal obligation on the loan. 12 C.F.R. § 226.17(c)(1) </li></ul>
  18. 18. OPTION ARMS – PAYMENT SCHEDULE AND TEASER RATE <ul><li>The Payment Schedule should reflect all components of the finance charge…and in a variable rate transaction with…a discounted or premium rate, disclosure should not be based on the initial terms .” 12 C.F.R. § Pt. 226, Supp I, ¶¶ 17(c)(1)-8, 18(g)-1. </li></ul><ul><li>“ A Payment Schedule which bases several years of payments on the initial low interest rate, does not reflect clearly the legal obligation evidenced by the Note”. See Amparan v. Plaza Home Mortgage, Inc., 2008 WL 5245497. </li></ul>
  19. 19. OPTION ARMS – PAYMENT SCHEDULE AND TEASER RATE ( CONTINUED… ) <ul><li>The initial “teaser rate” is usually only applicable for one month, yet the entire Payment Schedule in the TILD is typically calculated based on the teaser rate . </li></ul><ul><li>“ Where negative amortization is a certainty, TILA requires disclosure of that fact .” See Mincey v. World Savings Bank , FSB (DSC Aug. 15, 2008) </li></ul><ul><li>“ T he average borrower reasonably believed that the teaser rate was a fixed rate and that neg am was only a possibility rather than a certainty.” See Monoco v. Bear Stearns, 554 F.Supp.2d 1034 </li></ul>
  20. 20. OPTION ARM – NEGATIVE AMORTIZATION <ul><li>A lender is required to disclose “[a]ny rules relating to changes in the index. Interest rate, payment limitations, negative amortization , and interest rate carryover”. 12 C.F.R. § 226.19(b)(2)(viii). </li></ul><ul><li>A note with only one reference to negative amortization as a possibility has been found to state a claim for a TILA violation. See Amparan . </li></ul><ul><li>Disclosing the possibility of neg am is misleading when the reality is that it will occur. Placentia v. Lending 1 st Mortgage , 2008 WL 1902698. </li></ul>
  21. 21. OPTION ARM – EQUITABLE TOLLING AND STATUTORY DAMAGES <ul><li>1 year SOL, however, </li></ul><ul><li>The Ninth Circuit has held that TILA’s one year statute of limitations period is subject to equitable tolling until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosure that form the TILA action. ( King v. California (9th Cir. 1986) 784F.2d910,915) </li></ul><ul><li>See Ralston v. Mortgage Investors Group, Inc. , 2009 WL 688858. Equitable Tolling sufficiently alleged for Option ARM. (loan docs did not clearly disclose teaser rate would increase, etc.) </li></ul>
  22. 22. 2923.5 DECLARATION DEFICIENCIES <ul><li>TRO granted when: </li></ul><ul><li>Homeowner’s Declaration persuasive if testify to actual facts in contravention of lender’s declaration </li></ul><ul><li>2923.5 declaration did not state the date the declaration was signed, </li></ul><ul><li>Who signed the declaration, </li></ul><ul><li>Where the declaration was signed, </li></ul><ul><li>That it was signed under penalty of perjury, (CCP 2015.5) </li></ul><ul><li>That it was signed by the beneficiary or an authorized agent of the beneficiary, </li></ul><ul><li>That the declarant had personal knowledge, </li></ul><ul><li>Additionally, the declaration did not state &quot;actual facts,&quot; it only stated legal conclusions such as statute was satisfied, all requirements were met, etc. </li></ul>
  23. 23. CALIFORNIA CIVIL CODE § 2923.6 <ul><li>§ 2923.6: Servicers act in the best interest of “all parties” if they offer a loan modification in which the “ anticipated recovery ” under loan modification exceeds the anticipated recovery through foreclosure. </li></ul><ul><li>Roadblocks: Loan Mods not mandatory; Lenders will argue no private right of action . </li></ul><ul><li>May support B&P § 17200 </li></ul>
  24. 24. CALIFORNIA CIVIL CODE § 2923.5 LEGISLATIVE HISTORY <ul><li>Unnecessary foreclosures can and should be avoided </li></ul><ul><li>“ It is essential to the economic health of California for the state to ameliorate the deleterious effects on the state economy and local economies and the California housing market that will result from the continued foreclosures… </li></ul><ul><li>These changes in accessing the state's foreclosure process are essential to ensure that the process does not exacerbate the current crisis by adding more foreclosures to the glut of foreclosed properties already on the market when a foreclosure could have been avoided. See Sections 1(d) of Stats.2008, c. 69 (S.B.1137) (emphasis added) </li></ul>
  25. 25. MORE LEGISLATIVE HISTORY <ul><li>“ This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution”. See Sections 10(a) of Stats.2008, c. 69 (S.B.1137). (emphasis added) </li></ul><ul><li>This act is necessary to avoid unnecessary foreclosures of residential properties and thereby provide stability to California's statewide and regional economies and housing market </li></ul>
  26. 26. CALIFORNIA TRANSLACTION ACT (CIVIL CODE § 1632) <ul><li>If loan is negotiated in Spanish, Loan documents must be provided in Spanish. </li></ul><ul><li>Loan is subject to rescission and damages. </li></ul><ul><li>Lender can defeat this claim if loan documents were translated at closing; however, the “translator” cannot have been an employee of the broker/lender. </li></ul><ul><li>Also applies to Chinese, Tagalog, Vietnamese and Korean. </li></ul><ul><li>Same “Tender” Issues….. </li></ul>
  27. 27. FORECLOSURE PROCEDURAL ISSUES: STANDING <ul><ul><li>California Civil Code § 2932.5 - Power of sale under Deed of Trust can only vest in an entity that is “ entitled to money payments” under Note </li></ul></ul><ul><ul><li>Power of Sale can only be exercised by the assignee if the assignment is duly acknowledged and recorded . </li></ul></ul><ul><ul><li>Foreclosing entity must be a beneficiary under the NOTE (or an agent). </li></ul></ul><ul><ul><li>Assignment of deed alone is insufficient: See Carpenter v. Longan , 83 U.S. 271, 274, 21 L. Ed. 313 (1872). </li></ul></ul>
  28. 28. MERS ISSUES <ul><li>MERS is a product of the mortgage industry , designed to facilitate and to keep hidden the transfer of mortgages on the secondary mortgage market and save lenders the cost of filing assignments. </li></ul><ul><li>MERS is not a mortgage lender , nor does it ever own or have any beneficial interest in the note or mortgage. See, e.g., Merscorp, Inc. v. Romaine , 295 A.D.2d 431, 743 N.Y.S.2d 562, 2002 N.Y. Slip Op. 0475. </li></ul><ul><li>Argue that there is “No evidence of record that establishes that MERS either held the promissory note or was given the authority by [the originating lender] to assign the note.” </li></ul>
  29. 29. MERS ISSUES ( CONTINUED… ) <ul><li>Argue: MERS cannot assign the promissory note or the deed of trust. </li></ul><ul><li>Argue: NOD and NOTS void if issued by MERS. </li></ul><ul><ul><li>MERS should not be allowed to proceed with foreclosures because they do not have ownership of the debt. LaSalle Bank v. Lamy, 2006 N.Y. Misc. LEXIS 2127 </li></ul></ul><ul><li>Argue: Public Policy: Unfair to homeowners: </li></ul><ul><ul><li>MERS hides public mortgage loan ownership information from the borrower and the public by keeping it in a secret and inaccessible place when it is should be publicly recorded. </li></ul></ul>
  30. 30. TRO’S AND PRELIMINARY INJUNCTIONS <ul><li>File case. </li></ul><ul><li>Then file Ex Parte Application for Temporary Restraining Order. </li></ul><ul><li>Client Declaration & Declaration re Notice </li></ul><ul><li>Attachments: NOD, NOTS, proposed modification, supporting income docs. </li></ul><ul><li>Outcome depends on the Judge: State Court Judges in affected areas more sympathetic; Federal Judges less so. </li></ul><ul><li>A bond may or may not be required. ($10k-$20k) </li></ul>
  31. 31. TRO’S AND OPTION ARMS <ul><li>Preliminary Injunction Granted where: “[ F]ailure to disclose that the payment cap associated with the Option ARM loan sold to Plaintiff would certainly cause negative amortization to occur ” violated C.F.R. § 226.19. Avila v. Stearns Lending, Inc. (C.D.Cal.April 7,2008) No. CV 08-0419-AG, 2008 WL 1378231. </li></ul><ul><li>For “ serious TILA violations ”, a court may grant a preliminary injunction restraining the foreclosure sale even if the borrower does not demonstrate the ability to make full restitution in one lump sum on an award of rescission. Avila v. Stearns Lending, Inc . (CD Cal 2008) 2008 US Dist Lexis 31813. </li></ul>
  32. 32. TARP & HAMP <ul><li>The Emergency Economic Stabilization Act of 2008 (EESA). </li></ul><ul><ul><li>Signed into law on October 3, 2008 </li></ul></ul><ul><ul><li>The United States Treasury has instituted a number of programs, including: </li></ul></ul><ul><ul><ul><li>The &quot;Making Homes Affordable&quot; Act (“HAMP”), </li></ul></ul></ul><ul><ul><ul><li>Capital Purchase Program, and </li></ul></ul></ul><ul><ul><ul><li>Capital Assistance Program, among others. </li></ul></ul></ul><ul><ul><ul><li>For complete list see: . </li></ul></ul></ul>
  33. 33. HOME AFFORDABLE MODIFICATION PLAN (“HAMP”) – REQUIRED PARTICIPATION <ul><li>Pursuant to the plans, and the authority provided by H.R. 1424 Title I Sec. 109-110, the United States Treasury has ordered as follows: </li></ul><ul><li>Mortgage Foreclosure Mitigation: All recipients of capital investments under the Financial Stability Plan will be required to commit to participate in mortgage modification program. </li></ul><ul><li> </li></ul>
  34. 34. HAMP & TARP ( CONTINUED… ) <ul><li>Pursuant to the United States Department of the Treasury Section 105(a) Troubled Asset Relief Program (TARP) Report to Congress for the Period April 1, 2009 to April 30, 2009 </li></ul><ul><ul><li>If the Lender has received TARP funds from the U.S. Government in purchases of troubled assets, loan modification should be considered . </li></ul></ul><ul><ul><li>See </li></ul></ul><ul><li>M ost Common TARP recipient Banks: Wells Fargo, US Bank, GMAC, Bank of America (Countrywide), Chase (Wamu) </li></ul>
  35. 35. HAMP & LOAN SERVICERS <ul><li>Servicers: Many Mortgage Servicers have committed to the Home Affordable Modification program through a formal written “ Participation Agreement ” with the United States of America. </li></ul><ul><li>See Residential Mortgage Servicers listed on Hope Now Alliance website. </li></ul><ul><li>As a recipient of TARP funds , and pursuant to the Participation Agreement , the Servicer is subject to the U.S. Treasury's modification program guidelines for the Making Home Affordable Program. </li></ul><ul><li>Therefore, a loan modification should be offered to the eligible borrower </li></ul>
  36. 36. HAMP & FORECLOSURE SUSPENSION <ul><li>US Treasury guidelines clearly require &quot;[A]ny foreclosure action…be temporarily suspended during the trial period, or while borrowers are considered for alternative foreclosure prevention options. </li></ul><ul><li>In the event that the Home Affordable Modification or alternative foreclosure options fail, the foreclosure action may be resumed.” </li></ul><ul><li>Now available for seconds (2MP) </li></ul><ul><li>HAMP FAQ’S - SUPPLEMENTAL DIRECTIVE 09-01 (7/22/09) </li></ul><ul><li>“ Foreclosure actions…including initiation of new foreclosure actions, MUST be postponed for all borrowers who meet the minimum HAMP eligibility criteria. (FAQ #3) </li></ul><ul><li>Servicers MUST apply the specified modification steps until the borrower’s monthly mortgage payment ratio is reduced as close as possible to 31 percent . (FAQ #4) (emphasis added) </li></ul>
  37. 37. HAMP QUALIFICATION PROCESS <ul><li>The guidelines further require, in summary: </li></ul><ul><li>A) A screening for borrowers who write to their lender for assistance even if not in default; </li></ul><ul><li>B) A Net Present Value (NPV) analysis , which, if positive, requires the offering of the Making Homes Affordable (HMA) Modification; </li></ul><ul><li>C) If the NPV analysis does not qualify for the MHA program, the lender must seek alternative foreclosure prevention including alternative modification programs, deed-in-lieu, and short sales ; and </li></ul><ul><li>D) Borrowers in litigation can qualify for a modification without waiving legal rights in such litigation.s </li></ul>
  38. 38. HAMP ELIGIBILITY <ul><li>Home must be applicant’s primary residence. </li></ul><ul><li>Amount owed on first mortgage must be equal or $729,750. </li></ul><ul><li>A homeowner must be “having trouble” paying their mortgage - delinquent (missed two payments) or default is “imminent”. </li></ul><ul><li>The mortgage was originated before January 1, 2009 </li></ul><ul><li>The payment is more than 31% of the homeowner’s gross monthly income. </li></ul>
  39. 39. HAMP MODIFICATION CRITERIA <ul><li>The plan requires, in pertinent part, the following steps: </li></ul><ul><li>Request the monthly gross income of the mortgagee </li></ul><ul><li>Capitalize the arrearage </li></ul><ul><li>Target a front-end DTI (debt-to-income) of 31% </li></ul><ul><li>Reduce the interest rate to a minimum of 2% reach the DTI target. </li></ul><ul><li>Extend the term of the loan up to 40 years to reach the DTI </li></ul><ul><li>Forbear principal to reach the DTI </li></ul>
  40. 40. FORECLOSURE & LOAN MODIFICATION LITIGATION: Pantoja v. Countrywide <ul><li>PANTOJA V. COUNTRYWIDE HOME LOANS, INC., ET AL. , --- F.Supp.2d ---, 2009 WL 2423703 (N.D.Cal. 7/9/09) </li></ul><ul><li>ALLEGATIONS: </li></ul><ul><li>Wrongful foreclosure since NOD failed to properly identify beneficiary, violates CC § 2924c(b)(1) </li></ul><ul><li>Wrongful foreclosure for failure to produce or prove possession of original promissory note </li></ul><ul><li>Violation of intent and purpose of TARP, by using TARP funds for own enrichment </li></ul><ul><li>Violation of CC § 2923.6 for failure to modify loan </li></ul><ul><li>HOLDINGS (Motion to Dismiss): </li></ul><ul><li>Standing to bring action to set aside foreclosure sale for irregularities in sale notice or procedure requires borrower demonstrate a valid and viable offer to pay back the loaned amount minus interest and finance charges, unless inequitable. (“Tender Rule”) </li></ul><ul><li>No claim for deficient foreclosure notice if borrower suffers no prejudice </li></ul><ul><li>No private right of action against TARP fund recipients, only against Secretary of Treasury for acts by the Secretary </li></ul><ul><li>California law does not require production or possession of original promissory note in order to proceed with nonjudicial foreclosure </li></ul><ul><li>No private right of action under CC § 2923.6, only for servicer or investor in a loan pool; no duty to modify loan </li></ul><ul><li>MERS has right to foreclose under CC § 2924 given borrower granted MERS such right in his contract </li></ul>
  41. 41. HAMP LITIGATION: Williams v. Geithner <ul><li>WILLIAMS, ET AL. V. GEITHNER, ET AL. , U.S. District Court, Minnesota, Class Action filed 7/28/09, Case No. 0:09-cv-01959-ADM-JJG </li></ul><ul><li>Filed by Housing Preservation Project attorneys – </li></ul><ul><li>Borrowers’ circumstances: GSE and non-GSE loans, should have qualified for HAMP but denied without reason or ability to appeal, or just ignored </li></ul><ul><li>Johnson Sendolo’s story: </li></ul><ul><ul><li>Lost job, defaulted, got a new job paying less </li></ul></ul><ul><ul><li>Denied a HAMP modification without specific reason, only list of possible reasons, and did not contain evaluation of his other options, if any </li></ul></ul><ul><li>Nicole Williams’ story: </li></ul><ul><ul><li>Lost job, defaulted, got a new job </li></ul></ul><ul><ul><li>Servicer offered temporary loan modification but not HAMP modification (more than 31%) </li></ul></ul><ul><li>Carey Koppenberg’s story: </li></ul><ul><ul><li>Husband died, loss of his income, defaulted </li></ul></ul><ul><ul><li>Sent in HAMP application, home was foreclosed on prior to any HAMP determination made </li></ul></ul><ul><li>Carrie Strohmayer’s story: </li></ul><ul><ul><li>Divorce, loss of husband’s income, defaulted </li></ul></ul><ul><ul><li>Denied HAMP modification orally, no written denial, because DTI ratio was too high (FNMA loan) </li></ul></ul><ul><li>Complaint: No written denial requirement, no specific reasons for denial, NPV formula or application, and no opportunity for appeal  borrowers denied Fifth Amendment procedural due process. HAMP is an entitlement program; its benefits cannot be administered arbitrarily and without procedural due process. All foreclosures should be stopped until proper procedures are put in place. </li></ul>
  42. 42. CA AG SETTLEMENT WITH COUNTRYWIDE <ul><li>On October 20, 2008, CFC entered into a Stipulated Judgment and Injunction (“Settlement”), in which CFC confirmed it expected to provide up to $8.68 billion of home loan and foreclosure relief nationally , including $3.5 billion to California borrowers . </li></ul><ul><li>Pursuant to the Settlement, “Eligible Borrowers” with “Qualifying Mortgages” are to be considered for a loan modification in accordance with the “Affordability Equation”. </li></ul>
  43. 43. COUNTRYWIDE SETTLEMENT – “QUALIFYING MORTGAGES” <ul><li>Pursuant to paragraph 3(P) and 3(FF) of the Settlement, a “ Qualifying Mortgage ” is one in which: </li></ul><ul><li>the first payment date was on or before December 31, 2007 , </li></ul><ul><li>is secured by an owner-occupied 1-4 unit residential property and is serviced by a CFC Servicer. </li></ul><ul><li>Further, the loan is a Subprime 2, 3, 5, 7, or 10 Hybrid ARM or Pay Option ARM . </li></ul><ul><li>Plaintiff is either a Delinquent Borrower or Seriously Delinquent Borrower with a Loan To Value (“LTV”) is 75% or more . In addition, the plaintiff has not acted with intentional nonperformance. </li></ul>
  44. 44. CFC SETTLEMENT AND HYBRID ARMS <ul><li>Pursuant to Section 6.3.3(a), Qualifying Mortgages that are Subprime Hybrid ARMs will be eligible for: </li></ul><ul><li>An unsolicited restoration of the introductory rate for five years, without new loan documentation or an evaluation of the Eligible Borrower's current income. </li></ul><ul><li>A streamlined, fully-amortizing loan modification subject to the Affordability Equation. </li></ul>
  45. 45. CFC SETTLEMENT AND OPTION ARMS <ul><li>A streamlined loan modification subject to the Affordability Equation consisting of: </li></ul><ul><li>(a) elimination of the negative amortization feature ; </li></ul><ul><li>(b) optional ten-year interest-only period on the loan; </li></ul><ul><li>(c) reduction of the interest rate to a rate no lower than the Interest Rate Floor, with an Annual Increase subject to an interest rate cap of 7%; and </li></ul><ul><li>(d) if the Eligible Borrower owns only one residential property and the LTV is 95% or higher, a write down of the principal balance of the Qualifying Mortgage (written down to achieve an LTV of 95%) </li></ul>
  46. 46. CFC SETTLEMENT AND FORECLOSURE SUSPENSION <ul><li>The foreclosure process for a Qualifying Mortgage of an Eligible Borrower will not be initiated or advanced for the period necessary to determine such Eligible Borrower’s interest in retaining ownership and ability to afford the revised mortgage terms, as well as the investor’s willingness to accept a loan modification. </li></ul>
  47. 47. ETHICAL ISSUES <ul><ul><li>Foreclosure Consultants and CC 2924 </li></ul></ul><ul><ul><li>State Bar Ethics Alert </li></ul></ul><ul><ul><li>“ Operation Loan Lies,” a nationwide sweep of sham loan modification consultants. </li></ul></ul><ul><ul><li>SB 94/AB764 – no advance fees for “loan modification” </li></ul></ul><ul><ul><li>Fee Splitting with Non Attorneys </li></ul></ul><ul><ul><li>Failing To Perform </li></ul></ul><ul><ul><li>Solicitation </li></ul></ul>
  48. 48. PLEASE SAVE QUESTIONS FOR THE END CONTACT: DAMIAN NASSIRI HOWARD | NASSIRI, PC (800) 872-5925 [email_address] CUONG NGUYEN PITE DUNCAN, LLP (619) 326-2400 [email_address]
  49. 49. BANKRUPTCY BASICS <ul><li>LYNDA T. BUI </li></ul><ul><li>Bankruptcy and Commercial Litigation </li></ul><ul><li>Shulman Hodges & </li></ul><ul><li>Bastian LLP </li></ul><ul><li>Foothill Ranch, CA </li></ul><ul><li> </li></ul><ul><li>ANN N. NGUYEN </li></ul><ul><li>Debtor and Creditor Bankruptcy Attorney </li></ul><ul><li>Law Office of Ann N. Nguyen </li></ul><ul><li>San Francisco/Oakland/ </li></ul><ul><li>San Jose Bay Area </li></ul><ul><li> </li></ul>
  50. 50. GOAL OF BANKRUPTCY <ul><li>A fresh start! </li></ul>
  51. 51. UNITED STATES BANKRUPTCY COURT <ul><li>Bankruptcy is filed in federal court, not state court </li></ul>
  52. 52. PROS AND CONS OF BANKRUPTCY <ul><li>PROS: </li></ul><ul><li>Could wipe out debt </li></ul><ul><li>Catch up with behind payments </li></ul><ul><li>Could keep all/most of property </li></ul><ul><li>Could strip amount owed down to current value (redeem car/ avoid 2 nd lien on house) </li></ul><ul><li>Stop creditors from debt collection (foreclosure/communication/ </li></ul><ul><li>lawsuit) </li></ul><ul><li>CONS: </li></ul><ul><li>Stays on credit report for up to 10 years </li></ul><ul><li>Bad credit </li></ul><ul><li>Non-discharge </li></ul><ul><li>Assets could be taken </li></ul>
  53. 53. BANRUPTCY CHAPTERS <ul><li>Helping your clients select the right chapter is your ethical obligation </li></ul><ul><li>Chapter 7 </li></ul><ul><li>Chapter 11 </li></ul><ul><li>Chapter 13 </li></ul>
  54. 54. ETHICAL OBLIGATIONS: WHAT CLIENTS MUST KNOW <ul><li>BK is a serious event </li></ul><ul><li>Petition and schedules are signed under oath and penalty of perjury (should not be taken lightly) </li></ul><ul><li>Do not transfer property > non disclosure of assets> Bankruptcy fraud </li></ul><ul><li>Sloppiness, inconsideration </li></ul><ul><li>Severe Consequences: </li></ul><ul><ul><li>Criminal prosecution (fines and/or imprisonment for up to 5 years) </li></ul></ul><ul><ul><li>discharge </li></ul></ul>
  55. 55. ETHICAL DUTY <ul><li>Whether to file </li></ul><ul><li>What Chapter to file </li></ul><ul><li>What exemptions to claim </li></ul><ul><li>Depends on: </li></ul><ul><ul><li>situation </li></ul></ul><ul><ul><li>assets/obligation </li></ul></ul><ul><li>MEET YOUR CLIENT, CONSULT THEM </li></ul>
  56. 56. BANKRUPTCY: AUTOMATIC STAY <ul><li>When you file bankruptcy, the court automatically (you do not have to ask for it) issues an order that prevents most creditors from collecting debt against you or your property (with some exceptions to this). </li></ul><ul><li>If your home is being foreclosed and the sale has not taken place, bankruptcy may stop this. </li></ul><ul><li>If your car is about to become repossessed , this automatic stay may stop them from taking your car </li></ul><ul><li>The automatic stay does not apply filed for bankruptcy and your case was dismissed in the past year (however, your attorney may be able to help with this) </li></ul><ul><li>The automatic stay lasts until: the court confirms your chapter 13 plan (if you filed Chapter 13), your case is discharged (in a chapter 7), your case is dismissed, a creditor is granted a motion for relief from the automatic stay. </li></ul>
  57. 57. DEBTS IN BANKRUPTCY <ul><li>Bankruptcy Debts That Can Be Discharged: </li></ul><ul><ul><li>most credit card debts </li></ul></ul><ul><ul><li>most medical bills </li></ul></ul><ul><ul><li>most court judgments </li></ul></ul><ul><ul><li>most loans </li></ul></ul><ul><li>Bankruptcy Debts That Are Not Discharged: </li></ul><ul><li>Debts you don't list in your bankruptcy forms (subject to some exceptions in a Chapter 7 case) (11 USC 523, 727) </li></ul><ul><li>Back child support and alimony </li></ul><ul><li>Court imposed fines and restitution </li></ul><ul><li>Student loans (with a exception which is extremely difficult to get in most cases) </li></ul><ul><li>Recent back taxes (taxes for years you did not file a return) </li></ul><ul><li>Judgments arising out of willful or malicious conduct (personal injury or drunk driving) </li></ul><ul><li>Debts where a creditor files a motion in court to prove that the certain debt should not be discharged (fraudulent actions or recent credit card charges for luxuries (which are presumably fraudulent if incurred within the last 90 days)) </li></ul>
  58. 58. CHAPTER 7 VS. CHAPTER 13 <ul><li>CHAPTER 7: LIQUIDATION </li></ul><ul><li>Allows you to wipe out many debts </li></ul><ul><li>You must give up any property you own that is not protected by exemption laws (the law allows you to keep certain property up to a certain amount) </li></ul><ul><ul><li>Governed by state law </li></ul></ul><ul><li>CHAPTER 13: REPAYMENT PLAN </li></ul><ul><li>You agree to repay all or a portion of your debts over time under the supervision of the bankruptcy court (3 or 5 year payment plan) </li></ul><ul><li>Allows you to keep your property while using your income to repay some or all of your debts </li></ul><ul><li>You can keep control your property regardless of value </li></ul><ul><li>BUT you will have to repay unsecured creditors the value of the property you would lose if you filed for Chapter 7 bankruptcy </li></ul><ul><li>After you complete your payment plan, your remaining debt (subject to some exceptions) are discharged </li></ul><ul><ul><li>For example: You owe $250,000 in credit card debt, during the plan you paid back $50,000 of the credit card debt, once you complete your plan, the remaining $200,000 credit card debt is wiped out (aka discharged) </li></ul></ul>
  59. 59. CHAPTER 7 VS. CHAPTER 13 ( CONTINUED… ) <ul><li>CHAPTER 7: LIQUIDATION </li></ul><ul><li>Emerge from bankruptcy without having to pay any of the discharged debt </li></ul><ul><li>CHAPTER 13: REPAYMENT PLAN </li></ul><ul><li>Allows debtor to catch up with past due payments (home mortgage, car) </li></ul><ul><li>Pay taxes without interest over a period of time (non dischargeable in a Chapter 7) </li></ul>
  60. 60. CHAPTER 7 VS. CHAPTER 13 ( CONTINUED… ) <ul><li>CHAPTER 7 ISSUES </li></ul><ul><li>Qualification: </li></ul><ul><ul><li>Means test (low enough income?) </li></ul></ul><ul><li>Exemptions </li></ul><ul><ul><li>Can they keep all of their property? </li></ul></ul><ul><ul><li>Depends on state law </li></ul></ul><ul><li>Fraudulent conveyance </li></ul><ul><ul><li>Have they transferred any property recently? (cash to parents, sold cars, took their name off property, etc) </li></ul></ul><ul><ul><li>Preference transfer </li></ul></ul><ul><li>CHAPTER 13 ISSUES </li></ul><ul><li>Debt limit: </li></ul><ul><ul><li>Do they owe too much debt? </li></ul></ul><ul><li>Motion to value and avoid lien (lien stripping) </li></ul>
  61. 61. DENIAL OF DISCHARGE <ul><li>Fraudulent transfers </li></ul><ul><li>Making false statements </li></ul><ul><li>Hiding assets </li></ul><ul><li>Disobeying court orders </li></ul><ul><li>THIS MAY BE A FEDERAL CRIME! </li></ul>
  62. 62. NON-DISCHARGEABLE DEBTS <ul><li>Student loans </li></ul><ul><li>Fraud (obtaining loans through false statements, incurring charges with false intent/ability to pay) </li></ul><ul><li>Alimony/ child support </li></ul><ul><li>Federal tax </li></ul>
  63. 63. COMMON EXEMPTIONS <ul><li>Equity in home </li></ul><ul><li>Equity in car </li></ul><ul><li>Tools of trade </li></ul>
  64. 64. EXEMPTIONS <ul><li>SYSTEM 1 </li></ul><ul><li>(CCP § 703) </li></ul><ul><li>SYSTEM 2 </li></ul><ul><li>(CCP § 704) </li></ul>
  65. 65. WILDCARD EXEMPTION <ul><li>SYSTEM 1 </li></ul><ul><li>(CCP § 703) </li></ul><ul><li>Can apply up to $21,825 that debtor or dependent use as residence, or in personal property. </li></ul><ul><li>SYSTEM 2 </li></ul><ul><li>(CCP § 704) </li></ul><ul><li>None </li></ul>
  66. 66. RESIDENCE/HOMESTEAD EXEMPTION <ul><li>SYSTEM 1 (CCP § 702) </li></ul><ul><li>None </li></ul><ul><li>SYSTEM 2 (CCP § 704) </li></ul><ul><li>(1) $50,000 is single debtor </li></ul><ul><li>(2) $75,000 if debtor is family unit. </li></ul><ul><li>(3) $150,000 if debtor or spouse is at least 65 years old, disabled, or if annual income is less than $15,000 or $20,000 if married. </li></ul><ul><li>“ Declared homestead” </li></ul><ul><li>“ Automatic homestead” </li></ul>
  67. 67. IN ORDER TO KEEP A CAR OR HOUSE <ul><li>Debtor needs to continue to make payments in order to keep the property </li></ul><ul><li>Example: </li></ul><ul><ul><li>Debtor wants to keep home </li></ul></ul><ul><ul><li>Exempt the equity in home if any </li></ul></ul><ul><ul><li>Continue to make payments on home </li></ul></ul><ul><ul><li>If Debtor is behind, debtor may want to file a Chapter 13 and pay arrears over a 3-5 year period </li></ul></ul>
  68. 68. BANKRUPTCY PRACTITIONER PITFALLS <ul><li>Client says they have no property but… </li></ul><ul><ul><li>They are on the grant deed on their mother's home </li></ul></ul><ul><ul><li>Joint savings accounts with family members </li></ul></ul><ul><ul><li>Just transferred their home to a brother </li></ul></ul><ul><ul><li>Had their family member file a lien on their property </li></ul></ul><ul><ul><li>Checking account shows they have more income than they actually have </li></ul></ul><ul><ul><li>Their bank statements shows numerous transfers of funds </li></ul></ul>
  69. 69. ETHICAL OBLIGATIONS <ul><li>Double check the numbers </li></ul><ul><ul><li>Tax returns </li></ul></ul><ul><ul><li>Pay stubs </li></ul></ul><ul><ul><li>Grant deeds </li></ul></ul><ul><ul><li>Insurance documents </li></ul></ul><ul><ul><li>Bank statements </li></ul></ul><ul><li>Use appropriate fair market value numbers </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Appraiser </li></ul></ul><ul><ul><li>Asset search </li></ul></ul>
  70. 70. WATCH OUT FOR TRUSTEE’S AVOIDANCE POWERS: <ul><li>Preferential Transfer (11 U.S.C. §§ 547, 550) </li></ul><ul><li>Fraudulent Transfer (11 U.S.C. §§ 544, 548, 550) </li></ul><ul><li>Post-Petition Transfers (11 U.S.C. §§ 549, 550) </li></ul>